Summary
Ericsson's acquisition of Nortel's wireless assets has been positioned as a return to CDMA for the Swedish vendor. That's true. The deal, however, isn't about CDMA...or even LTE. It's about an opportunity to snap up a good deal and get closer to CDMA operators worldwide who will be looking to LTE upgrades going forward.
Analysis
On Friday, July 24th, the wireless industry watched with bated breath as the auction of Nortel's CDMA and LTE assets got underway. While Nokia Siemens Networks kicked off the action with its Stalking Horse bid of $650 million earlier in the month, Ericsson came out the winner, offering $1.13 billion for the business.
After buying up Qualcomm's CDMA network assets then dropping out of the market, the move seems like a strategy reversal for Ericsson. It's not. Ericsson pulled out of CDMA because it didn't obtain the market share it needed to justify the business. Nortel's customer base gives it that share. More importantly, it gets the company closer to CDMA operators that it's hoping to sell on LTE (like Sprint) and those it's already sold on the technology (like Verizon) while holding off the potential competition from an NSN acquisition of Nortel's wireless business.
It doesn't hurt, of course, that the deal essentially pays for itself: Nortel's CDMA business pulled in about $2 billion in 2008. Sure, the market is in a long-term decline, but Ericsson's stability and an injection of R&D funding should put the company in a better position to maintain those sales. Calling the deal a firesale, given all the benefits to Ericsson, wouldn't be an exaggeration.
If Alcatel-Lucent was deemed disadvantaged when NSN put in its original bid, Ericsson stepping in as the winner puts it in a worse position. Ericsson is not a total newcomer to CDMA. The company is more stable. It can point to more momentum in the early days of LTE. And, where the loss to NSN is obvious, the real question is how long Motorola can maintain its networks business and whether or not there's an opportunity for NSN to get into CDMA game (and CDMA operators) down the road.
Peter Jarich consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
